In a bid to bring relief to customers suffering financial effects amid the coronavirus crisis, Commonwealth Bank has announced automatic home loan repayment reductions for existing customers.
Commonwealth mortgagors will have their home loan repayments automatically moved to minimum repayments starting May 1.
Up to 730,000 Commonwealth Bank customers are set to have their home loan repayments reduced to the minimum required under their loan contracts as of May 1. The reduced repayment scheme is expected to save customers an average of $400 per month, with the bank predicting this could create up to an additional $3.6 billion within Australia’s cash economy.
CBA Chief Executive Officer Matt Comyn said Commonwealth’s strong financial position should give Australians confidence in the bank’s ability to support the country through the current crisis.
“We understand the ongoing uncertainty as the nation responds to the challenges posed by coronavirus. Australia has a strong financial system and economy, and we stand ready to support our customers, our people, our suppliers and the economy at this time,” said Mr Comyn.
Eligible variable principal and interest home loan customers will have direct debit repayments automatically reduced, but Commonwealth customers – who the bank says are typically 37 months ahead on their home loan repayments – will have the option to opt-out of the repayment reductions and keep their current repayments if they choose. This option will be available from May 6 through the CommBank app or NetBank.
The announcement comes as part of a COVID-19 support package announced by the bank in March that outlined a series of schemes designed to put more cash in the pockets of CBA customers and the economy. For personal customers, the package included increases on 12-month term deposit rates to 1.7%p.a. for eligible new and existing customers and increasing eligibility criteria for personal overdrafts. Commonwealth also moved to automatically refund the late fees and interest to any customer who was unable to make their minimum credit card repayment during March.
Following the latest rate cut from the RBA, the bank also announced its lowest advertised interest rate ever, a 70 bps interest rate reduction to lower their fixed interest rate on one, two and three-year terms to 2.29% on principal and interest repayments.
“We are strongly supportive of the RBA’s new term funding facility. We intend to participate in this scheme to the fullest extent possible to access long term funding at highly attractive rates to help support Australian households and businesses at this time,” said Mr Comyn.
These new financial relief schemes follow on from the bank’s announcement earlier in March that home loan customers would be eligible to defer loan repayments for up to six months as part of the Australian Banking Association’s loan deferral scheme.
In response to the coronavirus all our home loan customers can defer their repayments for up to six months should they need to. Please go to https://t.co/MpMKfj3DoC to request assistance online. pic.twitter.com/8TTSjyixZ0— CommBank (@CommBank) March 20, 2020
Home loan customers effected by the coronavirus crisis are able to apply for the deferral through a digital registration process, with CBA predicting this could provide up to $10 billion relief to Commonwealth customers, money which can be spent revitalising the economy.
Home loan customers who are eligible for the six-moth deferral period on repayments will further receive one-off interest offset payments to counteract the effect of paying interest on interest during the deferral period.
“When a home loan repayment is deferred for six months, interest is calculated and added to the loan balance each month which can result in customers paying interest on interest each month,” said Group Executive Retail Banking Services, Angus Sullivan.
“To support more Australians, we will make a one-time payment to all customers who are receiving a home loan deferral because of the coronavirus,” said Mr Sullivan.
For an average loan of $350,000 the interest offset refund will be around $45 over the six-month period, although this will vary based on the loan amount and interest rate.
Mr Sullivan said the bank remained committed to supporting Australian households that have been financially affected by the coronavirus crisis and aimed to focus support on customers struggling to meet their financial commitments before the Government stimulus arrives in April and May.
The bank also announced support for small business customers that included further rate reductions on business loans and waiving merchant terminal fees, redraw fees, early redraw fees on business term deposit accounts, establishment fees, and deferring payments on select finance loans.
Words by Danielle Austin
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